INFLUENCE OF INTEREST RATE SPREAD AND DISCOUNT RATES ON LOAN PERFORMANCE IN COMMERCIAL BANKS BRANCHES IN KAKAMEGA COUNTY, KENYA
Abstract
This research investigated the influence of; interest rate spread and discount rate on loan performance of commercial banks branches in Kakamega County, Kenya. The study adopted descriptive survey design and used census method to collect data using a questionnaire from its target population of 98 senior management staff of 10 commercial banks branches in Kakamega County. A pilot study was conducted among 10 senior management staff of Kenya commercial bank, Bungoma branch, so as to check research instrument’s validity and reliability where Cronbach alpha test for reliability was done and all the responses yielded an acceptable measure of 0.7and above. SPSS) version 24 was used in data analysis. Both descriptive and inferential analysis was carried out. From a total of 98 questionnaires, 81 questionnaires were returned when dully filled depicting a response rate of 82.7%. From the values of unstandardized regression coefficients with standard errors in parenthesis, the independent variables (Interest rate spread; β = 0.176 (0.065) at p<0.05; and Discount rate; β = 0.324 (0.061) at p<0.05; were significant predictors of loan performance (dependent variable). The study concluded that interest rate spread and discount rates are significant determinants of loan performance in commercial banks. The study recommended that; commercial banks should strategically alert on interest rate spread following interest rate liberalization characterized by high implicit costs with tight monetary policy achieved through increased reserve and cash ratios so as to reduce their non-performing loans. Further, commercial banks should be alert on discount window by the central bank so as to access more loanable funds with minimal administrative costs so as to compensate for seasons of net loan losses.
Key Words: Interest Rate Spread, Discount Rate, Loan Performance, Kakamega County
CITATION: Luyeku, H. L., & Otinga, H. N. [2019]. Influence of interest rate spread and discount rates on loan performance in commercial banks branches in Kakamega County, Kenya. The Strategic Journal of Business & Change Management, 6 (1), 305 – 323.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i1.1058
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